Lesson details
- Estimated study time
- 110 min
Learning objectives (3)
Stop the old schedule at the transaction date. Before measuring anything, read the supplied accounting memorandum: did the transaction modify the existing liability, or extinguish it and create a new one? The two routes do not share a default entry.
Extinguishment lane
Reconstruct the old debt's net carrying amount immediately before retirement. Include unamortized discount or premium and issuance costs in their correct direction. Keep accrued interest separate when the supplied attribution does. Then compare net carrying amount with reacquisition consideration.
For a supplied carrying amount of $612,400 and attributable repurchase cash of $625,000, the issuer recognizes a $12,600 loss. Face amount does not enter that comparison merely because it appears on the certificate.
Modification lane
Do not derecognize the old debt or recognize an automatic gain or loss. Preserve the carrying amount, map revised cash flows, identify creditor and third-party fees, and apply the supplied continuation accounting. The exact subsequent yield calculation depends on the complete facts and scoped guidance.
Standards clock
The FASB proposed a targeted debt-exchange change in 2025. After further feedback, the Board paused deliberations in March 2026. The proposal is not the rule in this exercise. Current Subtopic 470-50 and the supplied technical conclusion control.
Exit check
For two changed-term cards with identical cash paid today, route one through a supplied modification conclusion and one through a supplied extinguishment conclusion. List which old balances survive and which are derecognized. For the modification card, state only the conclusion supported here: no automatic day-one gain or loss, and revised cash flows and fees require a new controlled schedule. For the extinguishment card, compute the supplied carrying-to- consideration gain or loss.